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What Is A Limit Order & How To Use It

What Is A Limit Order & How To Use It

If you have tried forex trading or are getting into cryptocurrency trading, the chances are that you will wonder what is a limit order at some point. Every trader wishes to improve on past performance and be as efficient as possible with their crypto and stock trades, especially in times of extreme market volatility.

One of the best ways to achieve that is by automating the entry points and exits after analyzing the crypto and stock market. Proper fundamental, technical, and application of trade tools can help save time and avoid missing out on some opportunities.

A limit order is an order type that allows traders to execute a trade at a predetermined price level. For instance, if an asset is bearish and approaching a key resistance level, you can set a limit order to execute a trade at or near the selected resistance level.

This investment strategy means that your trade will execute automatically when the crypto or stock reaches a specific price, so you do not have to keep watching the charts waiting for the right time to execute. In addition, many centralized exchanges (CEXs) and decentralized exchanges (DEXs) offer limit order options under the order type section.

How to execute a limit order

If you plan to execute a limit order on a trade, then the chances are that you have analyzed the market and expect the price action of the underlying asset to either go up or down from the current stock price. Of course, such price expectations are usually a byproduct of market analysis.

Nevertheless, they are essential to understand because the benefit of limit orders is setting price expectations to buy the asset at a maximum price or sell at a minimum price.

Such an approach is essential when using limit orders because it introduces a higher level of trading efficiency. There are two types of limit orders; buy limit orders and sell limit orders.

Buy limit order

Let’s assume that a trader expects Bitcoin to experience a slight market correction from its current price but remain bullish in the longer term, perhaps based on some FUD-inducing news or a correction after a significant uptrend. In that case, they can set a buy limit order at the targeted lowest price. A limit order type automatically triggers a buy order when the crypto or stock’s price falls to the lowest specific price or limit price by the trader. Once the price correction happens, it will automatically trigger the trade execution at the predetermined level.

For example, If Bitcoin is trading at $46,500 and the trader expects the price action to find support at the $45,000 level, they can set the limit buy order at or near $45,000. The goal of a buy limit order is to execute automatically when the crypto or stock reaches the desired price.

Sell limit order

If the buy limit order executes at the predetermined level, the trader is aware that prices cannot continue rallying indefinitely and will at some point reverse. That is why it is crucial to determine the level of profit they want to achieve from that particular trade and thus the price level they should sell.

The sell limit order is a sell order that is set to close the position as soon as it reaches the level at which the trader wants to take profit without additional risk. In this case, if the trader wants to achieve a 25% profit, they should set the sell limit order at around $56,000, which would be a 25% gain from the $45,000 purchase price at which the limit buy order was executed.

What differentiates a limit order from a market order?

A limit order allows you to select the limit price at which to buy or sell automatically. However, a market order will enable you to execute the trade immediately but without guaranteeing the execution price.

The most significant disadvantage with a market order is that you can’t specify the trade price since it executes near the current bid or ask price. The good news is that it may not matter unless you’re trading with high volumes. The reason is that the bid-ask spread difference is usually just a penny or two, so trading shares at a smaller volume won’t make much of a difference.

For example, if Bitcoin is trading at $45,000 and you expect to buy at $40,000 if it becomes bearish, you can execute a limit buy order which will only execute when the given reaches $40,000. However, a market order will execute the trade at the prevailing market price. It is the equivalent of executing a trade at the current price level, but executing such a trade might not be practical in situations where price movements are highly volatile.

Lastly, we cover the third type of order known as stop orders. A stop order is an order to buy or sell a security once it reaches a given price. A stop order can be used to limit losses since it will automatically execute at the specified price. In another guide, we dive into how to use the buy stop order, sell stop order, stop-loss order function and answer how a stop order and a stop-limit order differ.

Why you should consider incorporating a limit order approach to your crypto trading

  • The most significant advantage of using a limit order is that it provides more precision when executing trades. It is ideal when targeting a specific price level, such as when you expect the price of a cryptocurrency to bounce back from a previously tested resistance or support level. This makes them especially useful when using predominantly trading based on support and resistance.
  • Limit orders are ideal in highly volatile market conditions. For example, let’s assume you want to buy Bitcoin when it drops to $45,000 so you can take advantage of maximum price gains, but the market moves fast or is highly volatile. Due to the volatility, it would not be easy to execute your bid price at the preferred price level, but limit orders can automatically trigger the purchase.
  • Limit orders will give you more control over the desired price range, introducing more certainty into your trades. Achieving success in the crypto market requires patience and calculating the amount of profit you wish to take from each trade. Limit order execution makes it possible to take profit at accurate levels in line with the expected profit.

Disadvantages of limit orders

So far, limit order type of trade execution seems like the ideal way to trade, but it also has some drawbacks.

  • Limit order execution requires the limit price of the underlying asset to reach the specified price level to be executed. Unfortunately, market uncertainties, positive and negative news may introduce unexpected dynamics that cause the current market price to move in the opposite direction. It is difficult to account for such sudden changes to market conditions, and in such cases, it might take longer than expected for the market price to switch back and approach the limit order. In other words, you might wait longer than expected for the set limit price to be fulfilled.
  • You miss out on other opportunities if it takes too long to reach the targeted limit price threshold.
  • Sometimes, a software error might fail to trigger the limit order execution.


If you have been trading in fast-moving markets like cryptocurrency, you should add limit orders into your trading toolkit. You will find that limit orders give you more control than a market order and can make a huge difference in future performance.

The higher efficiency that limits order-based trading provides increases the margin of success when trading cryptocurrencies, stocks, and forex, depending on the type of investment you pursue. This applies to even the most experienced investor and is one of the best methods you can use to improve your trading. In addition, limit order execution can be advantageous when used the right way, especially when combined with other strategies like stop-loss orders and perpetual swaps.

We hope you find this educational content helpful as you continue to learn on your trading journey. With a deeper understanding of how limit orders work, investors and traders alike can use the tools available on both a CEX or a DEX like ours. An additional tip is joining our Telegram community and our newsletter, where we answer further questions and update investors on company news related to Matrixswap.

We look forward to hearing from you.

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